What are Bitcoin Ordinals?

Introduction

Ordinals are a protocol that allows inserting arbitrary data into individual satoshis on the Bitcoin blockchain, creating NFTs and tokens without needing a sidechain or separate token. This phenomenon, which gained significant attention starting in 2023, generated debate in the Bitcoin community about blockchain usage, mempool congestion, and Bitcoin's purpose. This guide will explain what Ordinals are, how they work technically, the controversy around them, and their impact on the mempool.

Important: This is an advanced level guide. We assume basic knowledge of Bitcoin, transactions, UTXOs, Taproot, and mempool. This guide seeks to be technical and neutral, explaining the phenomenon without taking political positions on whether Ordinals are "good" or "bad" for Bitcoin.

By the end of this guide, you'll understand what Ordinals are, how they work technically, why they generated controversy, and what their practical impact is on the mempool and Bitcoin network.

What Are Ordinals?

Basic Concept

Ordinals is a protocol that serializes satoshis (smallest unit of Bitcoin) and allows inscribing arbitrary data into them.

Main characteristics:

Numbers each satoshi individually
Allows associating data (text, images, videos, etc.) with specific satoshis
Works natively on Bitcoin blockchain
Doesn't require separate token or sidechain
Uses Taproot to store data

Simplified analogy:

Bitcoin can have 2.1 quadrillion satoshis (2,100,000,000,000,000)
Ordinals numbers each one (1, 2, 3, ...)
Allows "inscribing" data into specific satoshis
These satoshis can be tracked and transferred

How Does It Work Technically?

1. Satoshi Numbering:

Each satoshi receives ordinal number based on when it was mined
First satoshi of first block = ordinal 0
Satoshis follow mining order
Unique serial numbering system

2. Inscriptions:

Data is "inscribed" into satoshis through Taproot transactions
Script Witness data stores the data
Specific satoshi becomes associated with data
Data remains permanently on blockchain

3. Tracking:

Inscribed satoshi can be tracked through transactions
Ordinals software identifies which satoshi contains which inscription
Transfers maintain association between satoshi and data

History and Origin

Creation:

Proposed by Casey Rodarmor in January 2023
Implemented as protocol over Bitcoin
Explores Taproot functionalities
No change to Bitcoin protocol

Growth:

Gained rapid attention in 2023
First "image" inscribed in February 2023
Ordinals market grew significantly
Debate in Bitcoin community intensified

Current status:

Functional and active protocol
Community of developers and collectors
Debate about Bitcoin usage continues
Observable mempool impact

Inscriptions: How Do They Work?

Types of Inscriptions

1. Text Inscriptions:

Plain text or markdown
Can include code, poems, messages
Size limited by transaction cost

2. Image Inscriptions:

Images in various formats (PNG, SVG, WebP, etc.)
Stored directly on blockchain
Can be digital art, memes, etc.

3. Video Inscriptions:

Short videos in various formats
High cost due to size
Less common than images

4. Audio Inscriptions:

Audio files
Music, sound effects, etc.
Variable size

5. Application Inscriptions:

Executable code (JavaScript, Python, etc.)
Simple games, basic applications
Technical limitations

Technical Inscription Process

Step 1: Preparation:

1. Choose data to inscribe
2. Prepare file (image, text, etc.)
3. Calculate size and estimated cost

Step 2: Transaction Creation:

1. Create special Taproot transaction
2. Insert data into Script Witness
3. Use Ordinals-specific format
4. Prepare for signing

Step 3: Fee Payment:

1. Fee based on data size
2. More data = higher fee
3. Fee paid in Bitcoin
4. Miners process transaction

Step 4: Confirmation:

1. Transaction enters mempool
2. Miner includes in block
3. Data remains permanently on blockchain
4. Satoshi becomes associated with data

Technical Structure

Taproot Transaction with Inscription:

Inputs:
  - Previous UTXO

Outputs:
  - Taproot output with inscribed data
  - Change output (if necessary)

Witness:
  - Script Witness with inscription data
  - Ordinals-specific format
  - Inscription metadata

Data Format:

Data is inserted into Script Witness
Format includes special markers
Ordinals software identifies format
Data can be recovered from blockchain

Technical Limitations

Size:

Limited by transaction size
Cost increases with size
Too large = too expensive
Practical for relatively small files

Cost:

Each byte costs in fees
Large images can cost hundreds of dollars
Real cost increases with congestion
Barrier for large inscriptions

Block Size:

Inscriptions occupy space in blocks
Limited by weight limit (4 MWU)
Compete with normal transactions
Impact on mempool

Controversy in Bitcoin Community

Arguments Against Ordinals

1. Blockchain Usage:

Argument: Bitcoin should only be for financial transactions
Concern: Inscriptions use space for non-financial data
Fear: Diverts original purpose of Bitcoin
Criticism: "Spam" on blockchain

2. Mempool Congestion:

Argument: Ordinals fill mempool with non-essential transactions
Concern: Fees increase for normal users
Fear: Bitcoin becomes more expensive to use
Criticism: Financial users are harmed

3. Efficiency:

Argument: Storing images on blockchain is inefficient
Concern: Blockchain grows unnecessarily
Fear: Nodes need to store "useless" data
Criticism: Waste of resources

4. Precedent:

Argument: Sets precedent for more non-financial use
Concern: May lead to more congestion
Fear: Bitcoin becomes "NFT blockchain"
Criticism: Loss of focus

Arguments in Favor of Ordinals

1. Neutrality:

Argument: Bitcoin should be neutral about usage
Concern: Prohibiting uses is censorship
Fear: Creating "allowed use" rules is problematic
Defense: Any valid use should be allowed

2. Market Validation:

Argument: If there's demand and people pay fees, it's valid
Concern: Market decides what's valuable
Fear: Trying to control usage goes against principles
Defense: Fees paid validate usage

3. Innovation:

Argument: Ordinals demonstrate Bitcoin's flexibility
Concern: New uses may emerge
Fear: Limiting innovation is bad
Defense: Bitcoin can evolve and have new use cases

4. Technical Benefits:

Argument: Increases Taproot usage
Concern: More transactions may help security
Fear: Network underutilized without it
Defense: More usage = more security

Technical Debates

1. Is It Spam?:

Definition of spam is subjective
Valid transactions pay fees
Miners accept because they're paid
Debate about what constitutes valid use

2. Should It Be Blocked?:

Technically difficult to block
Would require protocol changes
Miners decide what to include
Debate about whether should try to block

3. Real Impact:

Measuring impact is complex
Congestion varies
Fees increased, but also dropped later
Debate about whether impact is permanent

4. Alternative Solutions:

Some suggest sidechains
Others suggest protocol changes
Some defend status quo
Debate about best approach

Community Position

Division:

Community is divided about Ordinals
No clear consensus
Different groups have different opinions
Debate continues active

Developers:

Some are critical
Others are neutral or positive
Focus on technical aspects
Avoid political positions when possible

Users:

Opinions vary widely
Some collect Ordinals
Others complain about fees
Diversity of perspectives

Mempool Impact

How Do Ordinals Affect Mempool?

1. Transaction Volume:

Ordinals create many transactions
Each inscription is a transaction
Transactions can be large
Total volume increases significantly

2. Transaction Size:

Ordinal transactions can be large
Data occupies space in witness
Weight increases
Blocks fill faster

3. Competition for Space:

Ordinals compete with normal transactions
Higher fee payer wins
Ordinal transactions may pay high fees
Normal transactions may be left out

Fee Impact

Before Ordinals (2022):

Average fees: Low (~1-5 sat/vB)
Congestion: Rare
Mempool: Usually empty or low
Experience: Fast and cheap transactions

During Ordinals Peak (2023):

Average fees: High (~50-200+ sat/vB)
Congestion: Frequent
Mempool: Full, tens of MB
Experience: Slow and expensive transactions

After Normalization (2024):

Average fees: Variable (~5-50 sat/vB)
Congestion: Occasional
Mempool: Varies with activity
Experience: Depends on moment

Impact Analysis

Factors That Influence:

1. Ordinals Activity:

When there are many inscriptions, mempool fills
When activity decreases, mempool empties
Impact is variable, not constant
Depends on market interest

2. Existing Congestion:

Bitcoin already had congestion periods
Ordinals add extra pressure
But not only cause
Combined factors

3. Miner Efficiency:

Miners include most profitable transactions
Ordinals may pay well
But normal transactions also compete
Fee market works

4. Block Capacity:

SegWit allows up to ~4 MWU per block
Ordinals use part of that capacity
But still space for normal transactions
Capacity not fully consumed

Data and Metrics

Typical Statistics:

Ordinals Transaction Volume:

Varies significantly over time
Activity peaks during hype
Decreases in quiet periods
Irregular pattern

Block Percentage:

Depends on period
May be 30-70% at peaks
Lower in normal periods
Constantly varies

Fee Impact:

Fees increase when mempool fills
But also depend on other factors
Relationship not linear
Complex to measure in isolation

Comparison with Other Factors

Other Sources of Congestion:

1. Normal Usage:

Normal adoption increase
More users = more transactions
Constant and growing factor
Main long-term source

2. Specific Events:

Price pump = more transactions
Market events
Temporary factors
Similar impact to Ordinals

3. Network Efficiency:

Block capacity
SegWit usage
Technical optimizations
Factors that reduce congestion

Conclusion:

Ordinals contribute to congestion
But not only cause
Impact is real, but variable
Broader context matters

Advanced Technical Aspects

How Do Ordinals Use Taproot?

Taproot and Witness:

Ordinals use Taproot Script Witness
Data is inserted into witness
Doesn't affect ScriptPubKey
Allows larger data

Technical Advantages:

Witness doesn't count as much in weight limit
More efficient than inserting in body
Uses SegWit resources
Takes advantage of recent upgrades

Limitations:

Still limited by total size
Cost increases with size
But more efficient than alternatives
Balancing trade-offs

Satoshi Numbering

Numbering System:

Based on mining order
First satoshi of genesis block = 0
Deterministic order
Consistent system

Tracking:

Ordinals software tracks satoshis
Maintains index of which satoshis have inscriptions
Identifies satoshis through transactions
Reference system

Technical Challenges:

Tracking satoshis is complex
Requires specialized software
Index maintenance
Scale challenge

Data Recovery

How to Recover Inscriptions:

1. Identify satoshi with inscription
2. Locate transaction that created inscription
3. Extract data from Script Witness
4. Process data for display

Supported Formats:

Various file formats
Software converts for display
Compatibility with web formats
Client-side processing

Decentralization:

Data is on blockchain
Anyone can recover
Doesn't depend on central server
Truly decentralized

Market and Economics

Ordinals Economics

Business Model:

Collectors buy/sell
NFT market on Bitcoin
Transaction fees generate revenue for miners
Economics similar to traditional NFTs

Values:

Varies greatly
Some worth thousands of dollars
Others worth very little
Speculative market

Platforms:

Dedicated Ordinals markets
Supporting wallets
Creation tools
Growing ecosystem

Economic Impact

For Miners:

More transactions = more fees
Additional revenue
Clear economic benefit
Incentive to include

For Users:

Fees may increase
Additional cost
But can also create value
Complex trade-off

For Network:

More usage = more security (in theory)
But also more cost
Balance necessary
Mixed effects

Comparison with Traditional NFTs

NFTs on Ethereum

Characteristics:

ERC-721 or ERC-1155 token
Metadata usually off-chain
Images on IPFS or servers
Separate network

Ordinals on Bitcoin

Characteristics:

Data directly on blockchain
Doesn't require separate token
Everything on-chain
Native Bitcoin network

Technical Differences

Storage:

NFTs: Metadata off-chain, image on IPFS
Ordinals: Everything on-chain on blockchain

Cost:

NFTs: Gas fees on Ethereum
Ordinals: Fees on Bitcoin (generally higher)

Decentralization:

NFTs: Depend on IPFS/servers
Ordinals: Completely on-chain

Permanence:

NFTs: Metadata may be lost
Ordinals: Data permanently on blockchain

Frequently Asked Questions

Are Ordinals NFTs?

Technically similar in concept (non-fungible tokens), but different implementation. Ordinals are "native Bitcoin NFTs" without needing separate token.

Can Ordinals be blocked?

Technically difficult. Would require protocol changes or miners' decision not to include. No simple mechanism to block.

Will Ordinals continue?

Depends on market interest. If there's demand and people pay fees, they'll probably continue. Market decides.

Is impact permanent?

Mempool impact is variable. When there are many inscriptions, congestion increases. When activity decreases, congestion decreases. Not permanent or constant.

Should we use Ordinals?

Personal decision. If you want to collect NFTs on Bitcoin and can pay fees, you can use. If you prefer Bitcoin only for financial transactions, you don't need to use.

Do Ordinals improve or worsen Bitcoin?

Open debate. Arguments from both sides have merit. Real impact is complex and depends on perspective. No definitive answer.

Conclusion

Ordinals are a protocol that allows inscribing data into individual satoshis of Bitcoin, creating native NFTs on the blockchain. This phenomenon generated significant debate in the Bitcoin community about appropriate blockchain usage, mempool congestion, and Bitcoin's purpose.

The main points you need to understand are:

Ordinals work through Taproot - Use Script Witness to store data in specific satoshis
Generated controversy - Community divided about whether valid use or "spam"
Impact mempool - Can increase congestion and fees when there's high activity
Impact is variable - Depends on activity level, not constant
Debate continues - No clear consensus on whether good or bad for Bitcoin
Technical functionality - Work as designed, technically valid

Understanding Ordinals is understanding how Bitcoin evolves and how new uses emerge. Whatever your opinion about Ordinals, understanding the phenomenon is important to understand Bitcoin's current state and community debates.

The debate about Ordinals reflects larger questions about Bitcoin's neutrality, appropriate blockchain usage, and balancing innovation with original purpose. These questions will continue to be discussed as Bitcoin evolves.

If you want to understand recent Bitcoin phenomena or debate blockchain usage, understanding Ordinals is essential. It's an example of how technical functionalities can be used in ways not originally foreseen, generating new debates and challenges.